NationalACH

According to the Electronic Payments Association, consumers save both time and money paying electronically rather than writing paper checks.

Consumers who pay bills online save the least 90 minutes a month off the time it takes to pay monthly bills by paper check.  An average consumer paying bills by paper check spends two hours of month to write out the checks.  Those paying electronically spent only 15 minutes a month.

Consumers who have 20 bills each month save $150 a year if they pay by electronic means rather than writing out a paper check.  The $150 includes postage, the cost of checks, late fees, and fuel.

Paying bills electronically is safer than paying with a paper check.  Identity theft most commonly starts with somebody seeing personal information on paper checks bills or account statements. 

Identity theft is frequently a crime of opportunity.  In considering the number of people who see personal information when the bill was paid by paper check, there is a higher likelihood of information being stolen simply because more people are seeing the information.  When a bill is paid electronically, there are no intermediaries who can steal the information. 

Another reason to pay checks electronically is to help preserve the environment.  If all Americans started paying bills electronically rather than by paper, 151 million pounds of paper would be saved annually.  The amount of paper being saved equates to 8.6 million garbage bags of waste.  Electronic payment of bills would eliminate 2 million tons of greenhouse gas emissions from polluting the environment.

The Standard Entry Class (SEC) code is a three letter code that identifies the nature of the ACH entry. Here are some common SEC codes:

ARC

Accounts Receivable Entries. Checks received by a merchant through mail or drop box and presented as an ACH entry.

BOC

Back Office Conversion. Checks that are converted from paper to an electronic debit at a centralized location.

CCD

Corporate Cash Disbursement. Primarily used for business to business transactions.

DNE

Death Notification Entry. Issued by the Federal Government.

POP

Point-of-Purchase. A check presented in-person to a merchant for purchase is presented as an ACH entry instead of a physical check.

POS

Point-of-Sale. A debit at electronic terminal initiated by use of a plastic card. An example is using your Debit card to purchase gas.

PPD

Prearranged Payment and Deposits. Used to credit or debit a consumer account. Popularly used for payroll direct deposits and preauthorized bill payments.

RCK

Represented Check Entries. A physical check that was presented but returned because of insufficient funds may be represented as an ACH entry.

TEL

Telephone Initiated-Entry. Verbal authorization by telephone to issue an ACH entry such as checks by phone. (TEL code allowed for inbound telephone orders only. NACHA disallows the use of this code for outbound telephone solicitations calls. )

WEB

Web Initiated-Entry. Electronic authorization through the Internet to create an ACH entry such as Paypal.

XCK

Destroyed Check Entry. A physical check that was destroyed because of a disaster can be presented as an ACH entry.

Echeck cashing stores are still the primary source of financial services for underbanked or unbanked consumers.  According the the Aite Group, this group of consumers seldom use electronic payments.  Instead, they rely on more traditional payment methods such as cash, checks and money orders.

Mainstream financial services company will have a difficult time weaning the underbanked and unbanked consumer away from reliance on check cashing stores. Although some of these consumers receive funds from check cashing on a prepaid card, the cards are used primarily as a substitute for cash. 

Unbanked and underbanked consumers are certainly not good candidates for electronic bill payments.  For the most part, they remain outside of the mainstream financial services markets. 

Results from the Aite Group survey realed that only 5% had paid a bill through an online banking site, although 13% had paid at a company website, and 8% had paid bills by the phone.  Most often, however, bills were paid by mail or in person.  The survey said that 31% were heavy cash users, 31% were heavy check users, 25% heavy money order users.   

Prepaid cards for general use have been marketed with the idea that the cards could be reloaded.  But, according to Mercator Advisory Group, many people who have the cards were not aware that the cards were reloadable.   And even if people knew the cards could be reloaded, only 11% of card holders had ever reloaded the cards.

Mercator estimates 79.7 million consumers don’t know about open-loop, or network branded, reload capabilities.  Banks, processors and merchants are keen to change that because reloads on prepaid cards can generate big profits.  Prepaid cards are most often reloaded at retail stores or at online bank sites.  . 

The most common use of general purpose open loop card is for gift giving. Gifts accounted for 87% of card purchases.  Only 14% of card purchasers used a prepaid card for household-expense management in the past year. Most users simply throw away the cards when funds are depleted rather than reloading the card.

Consulting firm Mercatus surveyed US mobile banking customers on how likely they would be to use remote deposit capture through a mobile phone.  Not surprisingly, 66% of those age 26-34 and 69% of those 35-44 said they would use the service if it was available through their banks.

Very few banks now offer remote deposit capture by mobile.  The service enables users to convert a paper check to an electronic transaction by taking a picture of the front and back of a check and transmitting the image digitally to their bank.

The most alluring part of the service is the convenience and easy of use.  Most people do not want to drive to a bank to deposit a check if transmitting a digital image gives them the same result, which is depositing money in their bank account.

Remote deposit capture is not a big money maker for banks; but it could be a good promotional device for banks.  The high degree of consumer acceptance gives a marketing opportunity to banks to offer the service as a way to garner new customers.  Mobile deposits for remote deposit capture will be the preferred method of deposit for 1.5 billion checks by 2014.

USAA is the most prominent financial institution offering remote deposit capture via mobile.  Since the company first offered the service in August of 2009, over $300 million in deposits have been made to the bank via mobile.

According to report from the Mobile Marketing Association and Luth Research , 17% of adults in the US use mobile banking.  The report predicts that by the end of 2010, this number will increase to 22%, representing a 30% year-over-year rise in mobile banking users.

Other findings from the report include

• 92% of adults own a mobile phone, and almost one in five of those use a mobile banking application..
• 11% report using a mobile web browser to access online banking services.  This is expected to grow to 14% within the next year.
• 8% use SMS for mobile banking and this number is expected to stay flat over the next year.
• 5.5% uses other applications, which is expected to increase to 8.5% by the end of the year.
• The most common uses of mobile banking is to check account balances, locate ATM machines, or bank branch locations.
• Asian Americans and Hispanics are adopting mobile banking faster than Caucasians.
• There is a high interest in using Smartphones as a payment device instead of swiping cards.

The International Payments Framework IPF is a membership association currently made of around twenty banks and central banks, clearing and settlement mechanisms, associations and software vendors based in Europe, the US, Canada, Brazil and South Africa.

The goals of the association include:

• Defining rules, standards and operating framework
• Simplifying non-urgent cross-border credit transfers
• Leveraging existing payment networks and International standards e.g. ISO 20022
• Enabling interoperability between domestic and regional non-urgent payments systems and banks

The association was formed in response to globalization.  Internationally, there are increasing numbers of organizations that need inexpensive, simplified payment mechanisms for sending and receiving international payments worldwide.

In the US, the National Automated Clearing House Association (NACHA)  is has implemented a new International Automated Clearing House (ACH) Transaction (IAT) rule.  The rule will simplify international payments and allow for fuller automation and tracking of all payments.

According to a recent study by research advisory firm Aberdeen Group , companies that rely on paper checks spend more than $11 on average per payment.   Companies that rely on electronic payments such as echecks spend 38% less per payment.  Clearly, echecks save companies money.

But in these days of environmental awareness, going green with echecks can be beneficial to companies as well.  From a public relations point of few, very few issues have the positive impact as an announcement of reduction of carbon footprints and corporate green initiatives.

According to NACHA’s PayItGreen Alliance , a corporation initiating 120,000 paper payments per year could save the following annual resources by converting just 50% of those payments to electronic:

• More than 2,208 pounds of paper.
• More than 27,000 gallons of gasoline.
• Approximately 264 tons of emitted greenhouse gases.

Other benefits of electronic payments and invoices include:

• Improved cash management.
• Lower transaction costs.
• Greater visibility and control.
• More efficient processes.
• Enhanced service to suppliers and employees.
• Reduced exposure to risk.

PR: wait… Cached: wait…

Single Euro Payments Area (SEPA) direct debits have been slow to replace national direct debit systems.  Part of the reason is that consumer groups are warning against the SEPA system.

Europe has working on the implementation of SEPA since 2007.  The goal of SEPA was standardization of payment standards the 31-member EU/EEA member countries.    The Payments Services Directive (PSD) provides the legal groundwork for SEPA.

Critics of SEPA direct debits say the system was created with the input of end users, including consumers, businesses, and insurance companies.  Opponents of the system say the system is open to fraudulent transactions because of the inability of the debtors’ bank to intervene once the payment has left the account and is in the hands of the creditor.  This makes it almost impossible to dispute transactions.

In addition, the PSD requires only an International Bank Account Number (IBAN) and a Bank Identifier Code (BIC) for transactions.  Critics say this is not enough information to protect against fraud.  A ruling by a German court to require account holders’ names and addresses in addition to IBAN and BIC was overruled by the PSD.  German consumer groups are now warning consumers against using the SEPA direct debit system.

Given the current situation, there seems to be little reason for consumers to use SEPA direct debits when they can easily continue to use national direct systems instead.

Internet bill payments continue to grow while paper checks declined during third quarter 2009.  According to NACHA , transactions of WEB e-checks for ACH online bill payments, totaled 562.6 million, up 7.6% from 522.9 million in 2008’s third quarter.

The accounts receivable conversion (ARC) for paper checks sent to mail then converted into electronic checks numbered 583.8 million transactions in the third quarter, 2009.  This was a decrease of 10.5% from 652.5 million for the same quarter in 2008

WEB echeck transaction volume is 96% of ARC transaction volume, up from 94% in the second quarter.  WEB echeck transactions are predicted to surpass ARC in 2010.

NACHA also reported that the  IAT code for international ACH payments had 303,802 transactions in the third quarter.  Since IAT went live on Sept. 18, there were only 9 days of transaction processing for IAT in third quarter.  NACHA projects annualized IAT volume of 8.5 million transactions.

Back-office conversion (BOC), that enables retailers to convert customers’ paper checks in their back offices or at processor facilities, had 41.3 million transactions in the third quarter, up 56.5% from 26.4 million a year earlier. Point-of-purchase (POP), had 120.2 million transactions, up 2.3% from 117.5 million in the 2008 period.

Volume on TEL, the e-check option for telephone-based ACH payments, was nearly unchanged at 86.3 million transactions in the third quarter compared with 86.2 million a year earlier.